South Korean shipbuilding stocks may jump as much as 80 percent in four months as they catch up with gains in oil prices, according to Mirae Asset Securities Co., an affiliate of the nation’s second-largest money manager.
The Korea KRX Shipbuilding Index, which tracks Hyundai Heavy Industries Co., Samsung Heavy Industries Co. and eight other shipbuilding stocks, may rebound as rising oil prices spur demand for drill ships and liquefied natural gas tankers, said Lee Sokje, a Seoul-based Mirae analyst. The index has tumbled 42 percent since reaching the highest this year on May 2.
“Looking at how oil prices are doing, it’s only a matter of time before shipyard shares follow,” Lee said by phone on Dec. 2. “This is a very good opportunity to buy.”
Brent crude, the benchmark used to price two-thirds of global oil supplies, has jumped about 9.8 percent since Oct. 4 because of easing economic concerns and political tensions in Iran. The price may rise to $127.50 a barrel at the end of next year as the global economy avoids recession, Goldman Sachs Group Inc. said in a Dec. 1 report. It traded at $109.60 Dec. 2.
Hyundai Heavy, the world’s largest shipyard, gained 1.9 percent today to 294,500 won, the highest closing price in more than a month, in Seoul. Daewoo Shipbuilding & Marine Engineering Co. gained 4.2 percent to 30,900 won, the highest closing price in almost four months and the best performer on the Kospi 50 Index today. The Korea KRX Shipbuilding Index rose 1.9 percent.
The Bloomberg World Shipbuilding Index has fallen about 32 percent this year as orders for vessels to carry containers, commodities and oil have tumbled amid the European debt crisis and a slump in freight rates caused by overcapacity.
This slowdown may affect Korean shipyards less than those in China as shipbuilders including Hyundai Heavy, Samsung Heavy and Daewoo Shipbuilding, South Korea’s three largest, have pared their reliance on these traditional markets by focusing more on energy-related products. South Korean yards may win more sales from energy products than ships for the first time next year, according to NH Investment & Securities Co.
South Korean shipyards have built 88 percent of drill ships ordered since 2000 and 77 percent of LNG tankers since 2006, according to Mirae Asset’s Lee. Hyundai Heavy, based in Ulsan, South Korea, has won a record 11 drill-ship orders this year. The vessels are used to bore test wells.
Mirae’s Lee has “buy” ratings on all six of the shipyards he covers, according to data compiled by Bloomberg. He expects Hyundai Heavy to rise to 540,000 won within 12 months, compared with today’s closing price of 294,500 won.
The shipyard is rated “buy” by 37 analysts, with two “hold” ratings and two “sell” ratings, according to Bloomberg data.